Logo
Munich Personal RePEc Archive

Uncertainty and Currency Crises: Evidence from Survey Data

Prati, Alessandro and Sbracia, Massimo (2010): Uncertainty and Currency Crises: Evidence from Survey Data.

[thumbnail of MPRA_paper_21209.pdf]
Preview
PDF
MPRA_paper_21209.pdf

Download (295kB) | Preview

Abstract

This paper studies empirically how uncertainty affects speculation in the foreign exchange markets. We use the dispersion of survey forecasts of key macroeconomic variables to measure uncertainty about fundamentals. We find that uncertainty has a non-monotone effect on exchange rate pressures: namely, uncertainty heightens speculative pressures when expected fundamentals are good and eases them when they are bad. We prove that this prediction arises from a broad class of currency crisis theories, ranging from first-generation to global-game models. We also show that the proposed empirical strategy remains valid in the presence of forecasters with strategic objectives and use a novel set of instrumental variables to address potential endogeneity bias.

Atom RSS 1.0 RSS 2.0

Contact us: mpra@ub.uni-muenchen.de

This repository has been built using EPrints software.

MPRA is a RePEc service hosted by Logo of the University Library LMU Munich.